Payrolls Rise, but Jobless Rate Stuck in Place

The government’s monthly report on job creation brought what appears to be good news for the markets: U.S. employers created a net 227,000 jobs in February, convincingly higher than the 215,000 consensus expectation.

The jobs number from the previous month was revised sharply higher as well, to 284,000 jobs created from 243,000. Americans worked on average 34.5 hours, and their average earnings per hour ticked up slightly.

Nevertheless, the headline number of 8.3 percent will stay the same. There are still 12.8 million Americans out of work, reports the Bureau of Labor Statistics (BLS), and the numbers of long-term unemployed is steady at 5.4 million.

"While there is some good news in this report, it is hard to celebrate while so many Americans remain out of work and those who do have a job haven't seen a raise in years," said Republican Representative Dave Camp, the chairman of the House of Representatives Ways and Means Committee.

Private jobs numbers are considerably less rosy: A Gallup poll out Thursday reports the jobless rate actually rose in February, to 9.1 percent vs. 8.6 percent the month before. The private ADP jobs report had earlier said that employers added just 216,000 jobs in February, in line with expectations and lower than the BLS number.

A more downbeat Trim Tabs Investment Research report called it at 149,000 new jobs in February, down from a January figure of 181,000.

Importantly, in raw numbers, we are considerably less than halfway there: The country lost 8.8 million in the financial crisis, adding back 3.5 million jobs since it began.

"I think it's a long road ahead," Harvard professor and former IMF chief economist Ken Rogoff told CNBC. "It can take many years for it to hit bottom and it has. And it takes many years for it to come back up. We're not going to get a boom suddenly to getting 400,000, 500,000 jobs for several months, which for a little while people were hoping."

Meanwhile, BLS reports that 1 million Americans are “discouraged” workers, meaning they have given up looking for work, and another 2.6 million are “marginally attached,” meaning they are looking but have been temporarily disrupted in their search by school or family concerns.

These folks aren't counted when working up the headline number, BLS admits, so the number of people really out of work is closer to 15.6 million, easily more than the entire populations of states such as Pennsylvania or Illinois.

Better jobs numbers would be great news for the economy but possibly a wash for the White House. A poll of economists by the Associated Press predicts that the headline rate is likely fall to just 8 percent by Election Day and then to 7.4 percent by the end of 2013. Full employment is well below 6 percent, historically.

Economists figure it takes between 150,000 and 200,000 jobs a month to keep the employment rate flat at whatever level it might be at the moment. So, up to 200,000 new jobs functions as zero improvement when it comes to counting the numbers of jobless, even discounting the discouraged and marginally attached.

Meanwhile, labor participation rates have cratered. With the end of large-scale U.S. manufacturing and the beginning of the Baby Boomer retirement wave, men have been leaving the workforce in droves, never to return. Women have been coming in as men leave but not by enough to stem the decline in total numbers of workers, what the BLS calls the labor participation rate.

The government puts that figure at 63.9 percent, up slightly from the previous month but well off the Reagan-era highs of around 66 percent (it peaked at 67.3 percent in 2000). Up to 80 percent of men worked in the 1960s.

The jobs numbers thus could work in favor of the administration, if only barely. While the AP poll respondents see joblessness of 8 percent on Election Day, a calculation by Bloomberg News suggests that job creation of just 152,775 per month would be enough to push the headline number below 8 percent, a major psychological boost as voters go to the polls in November.

Additionally, new research by Barclays Capital suggests that the labor participation rate is likely to continue to slide, even if the economy improves rapidly. Fewer job seekers would improve the topline number substantially and in short order, irrespective of economic growth.

The size of the U.S. workforce is shrinking, argues economist Dean Maki at Barclays Capital, as Baby Boomers exit the workforce in the midst of a slow recovery following the Great Recession.

Even if the economy isn’t going gangbusters, the jobless rate could fall anyway, Maki contends.

"Based on our reading of the evidence, the conventional view that in recoveries the unemployment rate will stop falling and even start to rise because of surging labor force participation rates amounts to something of an urban legend," Maki stated in his research. "Such an event has not happened in the past and we do not believe it will this time either."

Any positive news, however statistically flaky, is likely to be a balm for stocks, which popped up 13,000 in the past week but then plunged on uncertainty over the U.S. recovery, the Greek bailout and rising U.S. gas prices. Nothing has really changed in any of these areas, but the revision to previous job numbers is likely to be a bit of wind in the sails for market bulls.

"The good news is that the improved pace of job growth continued in January and February," Kathy Bostjancic, director of macroeconomic analysis at the Conference Board, told CNBC. "The really good news is that this pace of job creation looks like it could be sustained through spring and summer, and possibly even pick up."

Meanwhile, employers are laying off fewer workers, down 3.3 percent in February from the month before according to consultant Challenger, Gray & Christmas, and reports are surfacing that manufacturers are struggling to find talent, even paying signing bonuses. That’s a huge shift in the market.

The reaction to watch is that of Federal Reserve Chairman Ben Bernanke. He has hinted in recent testimony to Congress that the Fed might tolerate higher inflation if it means creating jobs. If the jobs numbers cooperate, even on paper, that could signal tightening, or at least put an end to speculation of a third round of quantitative easing.

“The unemployment rate remains elevated, long-term unemployment is still near record levels and the number of persons working part time for economic reasons is very high,” Bernanke told Congress on Feb. 29.

Officially, the Fed’s mandate in setting monetary policy is to seek maximum employment and maintain stable prices, that is, low, predictable inflation. Some now see Bernanke allowing prices to rise a bit faster in order to bring jobless rates down more quickly.

“Sustaining a highly accommodative stance for monetary policy is consistent with promoting both objectives,” Bernanke said.

The Fed’s inflation target is 2 percent and it seeks an unemployment rate of between 5.2 percent and 6 percent. The current consumer price index is 2.3 percent excluding food and energy costs, or 2.9 percent counting those volatile categories.